When the history of the first quarter of the 21st century is written, I believe the verdict will be that America won the cold war and lost the post-cold war. At the end of the cold war, America emerged as the sole super-power and more importantly with a more compelling narrative for its success. Both the collapse of the Soviet Union and the engagement of China in the global capitalist system were taken to mean the superiority of open liberal societies with market-based economies.
Thus, at that time, thirty-five years ago, America was left practically unchallenged to advance an international order that itself had underwritten after the end of the Second World War. That order aimed in the avoidance of major conflicts, the furtherance of liberal political and economic systems, and the creation of a global market economy. Today this order lies in ruins in both its political and economic dimensions. The Middle East continues to convulse in wars since the American invasion of Iraq, Russia has shattered the illusion of peaceful coexistence in Europe, and China is aggressively vying for influence in its own region. Liberal democracy is in retreat and critically tested even within the US, while strongmen have risen to power around the globe. Finally, the global economic system is crumbling under the weight of President Trump’s tariffs and his retreat from humanitarian and development assistance to poor countries.
So, what went wrong? I will argue here that this American-inspired and supported international order has fallen victim to economic mismanagement which is the usual curse of great powers. In their book Balance: The Economics of Great Powers From Ancient Rome To Modern America (published some thirteen years ago) Glenn Hubbard and Tim Kane show how great powers like the Roman, British, and Ottoman empires, eventually collapsed because they failed to match their fiscal resources to the demands of their geopolitical interests. In all cases, the collapse did not come from outside enemies but from dangers within, the biggest being economic mismanagement.
More specifically, what I believe happened during the post-cold war years is that the US overreached abroad and underreached at home. By that I mean the US contributed to geopolitical developments that kept it overreaching abroad, thus overstretching its resources, while falling short in keeping its economy in balance at home.
First, the mismanagement of the West’s relations with the newly founded Russian Federation was an early cause for overreaching abroad. Unlike the cautious approach of Bush Sr., the Clinton administration and Western Europe moved far too aggressively to consolidate the West’s gains from the collapse of the Soviet Block at a time the new Russian state was still reeling from its geographical losses and the dramatic transformation to a market economy. Losing Russia as a partner in the design of the new order of European integration can account for the eventual backlash from a nationalist leader like Putin.
Second, despite an emerging world without big power rivalry, the US continued to follow a foreign policy that to this day is oriented more toward the application of hard (military) power than soft (developmental) power. Kept at bay from any meaningful influence in the western hemisphere, Russia and China have resented the continued American influence in what they consider to be their own spheres of influence. Despite its flagrant violation of Ukraine’s sovereignty, Russia’s hostile posturing against the West must be understood within this context of spheres of influence. The same applies to China as it expands its incursions into the Pacific.
The third piece of overstretching abroad was the “endless” wars in Afghanistan and Iraq which despite the enormous losses in treasury and blood failed to produce the hoped for results.
The US also overreached abroad as it tried to create a global economic order. The intended goal was commendable: bring countries together through a web of trade and economic relationships that would compel them to greater cooperation and less nationalist rivalries. That could have been sustainable for the US if it had a strategy how to balance the benefits of globalization with the costs to its own economy. Since the global competition for factories and jobs would have primarily hit high-production cost countries, like the US, there should have been in place a strategy to absorb the costs. It is in regards to the need for such a strategy that I believe America underreached to mitigate the costs of globalization.
This domestic underreach took many forms. First, there was no effective plan to protect the sectors of labor that were losing jobs to overseas production. Neither was there a coherent strategy to reorient the labor force toward the knowledge economy that required better, more analytically, educated workers. Left alone, the market proved to be a poor instrument to preserve well-paying jobs. The result was the creation of enormous wealth for the winners and social and economic decline for the losers of globalization. The increasing inequality of incomes and wealth was not unrelated to the gradual erosion of the balance of power between labor and capital in favor of the latter.
The question is why US governments did not take action to offset the costs of globalization. My answer to that question is, first, US governments were stuck to the myth that GDP growth is good for everybody. Second, to secure the funds to support its geopolitical as well as domestic needs the US would have to resort to higher taxation. However, years of preaching that a good government is a small one, had morphed into a bias against taxes. Furthermore, the doctrine that wealth is created from the top through favorable taxation of capital left successive US administrations averse to the idea of using the riches of the few to remedy the plight of the many. Thus, while the US was posing as the guardian of a costly international order, its appetite for more fiscal resources remained suppressed and fiscal deficits as well debt exploded.
Those who favor the global leadership of the US go as far as to call America under President Trump a “renegade” power (Hal Brands, Foreign Affairs, 2/25/25). The reality may be though that the failure over the last thirty years to manage the US economy to the needs of its hegemonic role is what has likely brought us to this point. Overreach abroad and underreach at home created the conditions that have fueled the populist backlash against the application of fiscal resources abroad when so many domestic ills fester at home.
This does not mean that Trump 2.0 is the right response. The impending legislation to extend previous tax cuts on top of enacting new ones will further undermine the fiscal capacity of the country. And the draconian tariffs imposed on friends and foes are unlikely to remedy the domestic economic inequalities and grievances. At the same time antagonizing traditional allies will erode the projection of American power beyond its immediate zone of influence.
As the US retreats from international cooperation and embraces the zero-sum game of this administration, Hal Brands (above) predicts the US will resort more to aggressive, unilateral, and illiberal foreign policy tactics. That, of course, will be the end of America’s international order that came out of its victory against fascism and Nazism.
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